| Felix Kubler, Stanford University |
| Is Intertemporal Choice Theory Testable? |
| Session: C-5-9 Sunday 13 August 2000 by Kubler, Felix |
| The recursive utility model is a widely used alternative to time-separability. However, we show in this paper that under certainty it does not impose any testable restrictions on a household's savings decisions or on choices in good markets over time. The additional assumption of a weakly separable aggregator is needed to ensure that the assumption of utility maximization restricts choices. Under this assumption, choices in spot markets are characterized by a strong axiom of revealed preferences. Under uncertainty and stationarity, recursive utility imposes observable restrictions on portfolio-choice even without the assumption of a weakly separable aggregator. |